The revision of the base year for estimating GDP of India has dramatically transformed the way we look at our economic growth rates. According to the new estimates, the year 2013-14, the last year when UPA was in power, witnessed a GDP growth rate of a massive 6.9 percent. Hitherto the growth rate during this year was estimated to be a moderate 4.7 per cent and the blame had been put on UPA government for this lackluster performance.
The growth rate during the current year is being estimated to be around 7.4 percent. With these fascinating growth rates India can now compete with China on being the fastest growing large economy in the world. The country is now looking forward to achieving double digit growth rates. In the immediate future there can be a partial setback to agricultural production as a result of untimely rains in North India
The situation on the prices front is again rosy. Estimate of inflation as per the wholesale price index even showed a negative figure. But according to the RBI we are to attach more credibility to the retail price inflation which too is recording a comfortable figure during recent months. Will conditions continue to remain so in the foreseeable future is now the matter for debate. On the prices front, prices of manufactured goods are bound to remain stable.
The concern is mainly about food prices. On the food front the prices of cereals can again be maintained stable with our comfortable buffer stocks. The real danger is that prices of fruits and vegetables should not turn volatile. The danger of such an eventuality occurring may come true if vegetable shortages emerge as a result of the unseasonal rains that has occurred in recent days. Already there are reports of huge damage to potato crops in various parts of the country.
India’s foreign exchange reserves position has been comfortable for several years now. However, deterioration in our current account deficit posed a threat to the country’s economic stability not a very long time back. But with the dramatic fall in international crude oil prices last year our position as regards current account deficit has again turned comfortable. The price of crude oil declined to almost half its level in the international market bringing cheer to the government and showering benefits on a variety of fronts.
Low price of crude oil was conducive to bringing down the level of inflation in the country besides adding strength to our balance of payments situation. The massive decline in value of crude oil imports also brought cheer on the subsidy front. The benefit on account of decline in quantum of fuel subsidies accruing to the government was a bonanza much beyond the expectations of the government at the time of preparation of the 2014 budget.
The favourable impact of decline in international crude oil prices on the overall level of subsidies made it easy for the government to stick to its fiscal deficit target in the recently presented union budget. The fiscal deficit was maintained at the targeted level of 4.1 per cent and targets for fiscal deficit in the short run period was also projected to be at levels acceptable to the central bank. The bank in turn came out with a 25 basis point reduction in interest rates.
The budget that was presented by the FM was short in living up to the expectations of big bang reforms. It was characterized as a budget of small bang reforms tilted towards pleasing the industry and the corporate sector. The initial reception to the budget could be considered to have been positive. But it was far from being a path breaking budget that lays a road map for the future initiatives of the government as was widely expected.
What have been the achievements and failures of this government so far. Improvement in the growth rates that have been achieved was due to the base year revision and not due to any positive initiatives of the government. The consolidation on the fiscal and prices front are also more a consequence of luck and primarily due to decline in oil prices. Measures of inflation show a declining trend but one can point out no action on the side of the government which one considers responsible for this.
If the activities of the government are to result in economic gains there is no evidence for it so far. Many had expected that the budget will reflect the true intentions of the government. The budget came and went and now everyone says this government stands for incremental reforms, nothing dramatic to be expected. Let us wait for incremental reforms and gains thereof.
P V Rajeev , former Economic Adviser of Government of India and worked as an Economist in Government of India for more than three decades. ...
